Gen Y and how brokers can reach them
Young, ambitious and wealthy - Gen Y are ready to enter the property market. MPA's Andrea Lavigne explores how brokers can reach the 'wired' generation
A rack of sunglasses with neon yellow, pink and green rims stands in a beachfront store in Sydney, but it is the sign above them that catches one's attention - "Looking for something a little less 'Corey', try the sunglasses at the back."
Party boy Corey Worthington certainly made a name for himself this year; his out-of-control booze fest attracted attention nationally and was even picked up by the BBC, CNN and UK newspaper The Guardian.
The 16-year-old, who sent out an open party invitation on MySpace, drew a crowd of 500 people to his parents' house which prompted a visit from a police air wing and dog squad.
Many will recall his parents facing a whopping $20,000 riot bill, but the real shocker was Raw Entertainment's subsequent job proposal. The events company offered the 16-year-old a job as a party promoter.
Party promoter Tim Sabre told The Herald Sun that if Corey could "pull 500 people to the street, he could easily fill a club".
Welcome to the world of Generation Y - young, wealthy and wired. If brokers want to tap into this market, they are going to have to be a little bit more... 'Corey'.
Y they're Gen Y
To reach this market, brokers must understand what defines Generation Y. While not being the most shining example of his peers, Corey nonetheless fits the spectrum. Generation Y are those born between 1976 and 1994 (these dates, however, vary according the source).
School shootings, 9/11 and the SARS epidemic marred Gen Y's formative years, while their collective conscience was shaped by a shift towards multiculturalism, gay rights and religious tolerance.
They were reared by soccer mums, ferried in minivans and hopped up on Ritalin and Red Bull. Their entertainment diet consists of reality TV, celebrity scandals and music videos. And, most importantly, they are the most technologically tuned-in generation to date - more apt to play 'telephone' with mobile phones than with cans on a string.
Consider this: without Gen Y, would we really be saying "Facebook me?"
Y settle?
But what does this have to do with mortgage brokers?
Generation Y are finally making themselves heard over the dull whine of Gen Xers in the housing market.
A recent study by Genworth Financial suggests that Gen Ys are starting to appreciate property ownership. About 20% of Genworth's portfolio is made up of Gen Y borrowers, compared to Gen X who make up 44%, Generation Jones (aged 43-52) who make up 25%, and Baby Boomers (aged 53-61) who make up 11%.
Last year, 81% of Genworth's mortgage insured loans to Gen Y were for owner-occupied properties, compared to 65% for Gen X, 51% for Gen Jones and 40% for Baby Boomers.
Mark McCrindle, social researcher and demographer, agrees that Gen Y intend to settle down. "Not only is owning your own home the great Australian dream, it's also a timeless emotional driver."
But while many Gen Yers do yearn for a place to call home, finding the money is not going to be easy. NATSEM's 2007 Income and Wealth Report found that 41% of people in the 25- to 29-year-old age group are already saving for a deposit, but only 25% of all Gen Ys have saved more than $10,000. (Most in this age group reported that they believe they will start buying residential property by the time they hit 30 years.)
Good news, bad news
The good news, however, is that Gen Y have record low unemployment on their side. They are walking into high paying jobs after university and household income is three times what it was in 1983.
The most affluent in this group are earning close to $120,000 a year, and 40% are taking home $75,000 a year on average.
"For the mortgage industry, the news that Gen Y have a weekly disposable income around the same as the average family is significant," says Peter Hall, Genworth's country executive and director.
The downside for Gen Y is that while gross income has increased three-fold, the median house price has increased eight-fold - in 1983, the average home in Sydney was $60,000, now it's $500,000.
According to a US-based survey of 227 cities, Australian homes are among the least affordable in the English-speaking world.
The 2008 Demographia study, which looked at housing affordability in Australia, New Zealand, Canada, the US, UK and Ireland, found that the least affordable city in Australia was Mandurah (rated sixth overall). Houses in Mandurah, located south of Perth, cost 9.5 times a household's average annual income. Houses in Sydney, which placed 11th in the survey, cost 8.6 times a household's income, while Perth and Melbourne - placed 19th and 22nd respectively - cost 7.6 and 7.3 times a household's average annual income.
While Gen X still drone on with a 'reality bites' cynicism over housing prices, Gen Y seem more complacent about the cost of stepping onto the property ladder. In fairness, it is probably harder to complain when you still have a silver spoon stuck in your mouth.
"In their formative years, they've seen nothing but a booming economy and jobs with great availability," McCrindle says.
"They've seen their parents do so well financially. They're the most materially endowed generation ever, they've been sent to private schools in record numbers and they've been given all of the stuff."
And with this advantaged upbringing comes an expectation around their lifestyle and standard of living.
Gen Ys have never been shy about subsidising their desires with debt. The 2007 NATSEM Income and Wealth Report found that Gen Y collectively owe approximately $60bn in debt.
About 55% of Gen Ys have credit card debt, while 37% have home loans and 23% have HECS debt.
"They've known nothing but debt," McCrindle says, adding that consumer categories such as mobile phones where you rack up a bill and pay it off monthly, and online shopping using credit cards, have made debt seem natural and commonplace.
"They're comfortable with debt, it's part of their lifestyle ... and they're prepared to carry debt for longer periods. So, traditionally, debt has always been in the lives of 20-somethings, but now we have a generation growing up in an era where you even buy the plasma TV and lounge suite on credit," McCrindle says.
But perhaps they are not charging it all on caviar and champagne? NATSEM's report found that Gen Ys are spending less on clothes, food and alcohol than their Gen X counterparts did in 1989. Gen Y's biggest expenses are housing (21%) and transport (14 %).
In Genworth Financial's 2008 report, 57% of Gen Ys stated that paying off debt was their number one priority, rather than purchasing a home, buying a new car, saving for a holiday, investing in property or investing in the stock market.
Different strokes
Given that most Gen Ys are graduating from school later (with debt), and putting off marriage, McCrindle suggests that many will look for alternate arrangements, such as sharing with friends or family members.
There is also evidence to suggest that Baby Boomers will play a key role in helping their children buy their first home (if only to get them out of the family home - almost one-fifth of 25-29-year-olds still live with their parents).
According to Mortgage Choice, the demand for less traditional mortgages, such as family equity mortgages, has increased in the last year.
A 2007 Mortgage Choice franchisee survey found that 34% of franchisees had noticed an increase in "other categories of joint borrowers" (slightly up from 32% in 2006), such as family members buying property together or buying with friends.
These products are often the only way for some people to enter the property market, says Warren O'Rourke, national manager of corporate affairs.
How to reach them
"The challenge for mortgage lenders will be reaching the Gen Y audience and the shifting mindsets - not only of Gen Y themselves in realising the benefits of property ownership over a more lifestyle-oriented purchase, but also the lenders' own mindsets and how they market to this generation," Hall says.
According to Genworth's director, the real difficulty for brokers will be cutting through all the other sales messages Gen Ys are bombarded with daily. "Getting through this crowded environment can be a real challenge, and you're only going to get one real chance to impress," Hall says.
McCrindle believes the most effective way to make an impression is through viral marketing. "We're talking about the most connected generation. Now through technology, their online community, it's easier for organisations to target through friendships than ever before," McCrindle says.
Gen Y are the masters of technology: two-fisting mobile phones - texting on one, talking on the other; networking on Facebook; and downloading videos from YouTube, all at the same time.
McCrindle advises mortgage brokers to ensure that a client who has had a positive loan experience recommends them to their online community.
While loyalty to brand is low in this age category, he suggests that relational loyalty is not.
"I think the application of this is to say that if mortgage brokers can build a personal relationship and not just stand behind the brand, then we actually can build up some long-term loyalty," he says. "I've seen brokers do this quite well."
Both McCrindle and Hall say the mortgage industry not only has an opportunity to educate Gen Ys through marketing, but also a responsibility to raise their financial knowledge.
"There's some level of obligation," McCrindle says. "I think there's marketing benefits as well for the industry, to help equip this generation with financial skills for life."
Gen Ys, he says, suffer from a "confidence gap".
They are surrounded by products and information, they have a working knowledge of superannuation from the age of 18, they bank online and "so they feel quite confident in their level of financial knowledge", he says.
But their competence is also surprisingly low, he adds. "We've done a national survey looking at financial terms, and the level of understanding is down to single digits. So while they've got more access to financial knowledge than ever, their financial literacy is surprisingly low."
Much of Gen Y's knowledge comes through the marketing campaigns they are exposed to, rather than any technical knowledge of products.
Unlike other generations, Gen Y do not compartmentalise their lives. "Work and life morph and mix, and I think that extends to financial products as well. They want to know that their credit card links with their mortgage, or if they go to a seminar on how to buy a home, they want financial information on other parts of their lives," McCrindle says.
"I think that it's a key market to target. Over the next decade we're going to see the Baby Boomers ease out, and the Gen Xers and Gen Yers are next - better to understand and reach them now."
GENERATION Y BROKER
Mortgage broker Richelle Benson understands the needs of Gen Y borrowers. Being a member of that generation herself, the 24-year-old broker says she can relate to the stress young borrowers feel about housing affordability, particularly in Perth where she is based.
"Even on a house of $400,000, we still need an $80,000 deposit, which they just don't have," she says.
As a result, many Gen Y borrowers are going for the 100% no-deposit loan and using their parents' equity to avoid paying mortgage insurance, she says.
Gen Ys are not turned off by the size of their loan either.
"When it comes to having a big debt, I don't think it really scares them very much," Benson says. Most just want to know how much it will cost them per week, not the length of time they will be paying it off.
In Benson's experience, most Gen Ys glean their financial knowledge from the internet.
"They ask a lot of questions," she says. "Because of the internet they do their homework. With the internet, there's so much information available, but whether they understand what they're reading is a different thing."
PAYING FOR LOCATION
A report by Genworth Financial found that the average loan amount for Gen Y borrowers in 2006 was $226,204 - an increase from $176,130 in 2003 - the result of increasing property prices and "a desire to live close to the city fringes to enjoy the lifestyle such locations offer".
FACT FILE: GEN Y
- 41% are saving for a home
- 20% earn $120,000 a year
- 40% earn $75,000 a year
- 55% have credit card debt
- 37% have home loans
- 23% have HECS debt
TIMELINE
- 1976 - Apple computer launched
- 1977 - Star Wars hits screens
- 1978 - Inaugural gay and lesbian Mardi Gras begins in Sydney
- 1979 - Sony Walkman introduced
- 1981 - Pac-Man is introduced
- 1985 - Hole in the ozone layer (first detected in 1977) is announced indisputable
- 1986 - Challenger Space Shuttle explodes, killing seven crew members
- 1987 - Black Monday: stock market drops 22% on 19 October
- 1988 - Anti-depressant Prozac is introduced
- 1989 - The fall of the Berlin Wall
- 1990 - Nelson Mandela is released from prison in South Africa
- 1994 - Bushfires consume 3,200,000 acres of land in NSW, four people are killed
